Report paints dire picture of city's finances

Luke Broadwater, The Baltimore Sun

A report by a consultant hired by Mayor Stephanie Rawlings-Blake's administration paints a dire picture of future city finances — opening the door for Baltimore officials to propose widespread cuts, including to city employees' health and pension benefits.

The report by Philadelphia-based Public Financial Management Inc. concluded that Baltimore is facing a structural deficit of nearly $750 million over the next 10 years. It pointed to pension and health care costs as the two biggest drivers of the city's projected deficit.

Rawlings-Blake moved to overhaul the pension system in 2010 and hinted at more changes during a news conference Wednesday. She said she would propose "a bold set of major reforms to address the fiscal challenges" during Monday's State of the City address.

The mayor said they will focus on "eliminating the deficit, making modern investments and changing the city's tax structure to make Baltimore more competitive for growth."

"If we act now, if we act decisively and boldly, we can change the trajectory for the city," Rawlings-Blake said, adding that she doesn't want Baltimore to end up like other bankrupt cities. "This is about being proactive so we don't get to that point."

The city paid the consulting firm about $460,000 to study municipal finances. The company projected a shortfall of $30.3 million next fiscal year, growing to more than $124 million by 2022. It said the biggest fiscal problems facing the city are caused by employee pensions and criticized a legal fight over public safety pensions.

That assertion and the report's grim tone drew criticism from several corners.

Detective Robert Cherry Jr., president of the city police union, dismissed the report as a political effort to cut funding of the fire and police pension system. He said the unions have made a series of concessions to City Hall and shouldn't be made the victims of a 'blame game.'"

"What's going on here is all a smoke screen," Cherry said. "They don't know what the market is going to be. They don't know what the tax base is going to look like. They're consultants asked to come and deliver bad news so that the city can do political posturing."

Anirban Basu, an economist who runs the Baltimore-based consulting firm Sage Policy Group, said the report makes too much of the pension issue and does not focus enough on the need to lower city property taxes. He questioned the wisdom of spending nearly a half-million dollars for the study.

"A lot of citizens would not need to be paid $460,000 to tell the city property taxes are the real problem," Basu said.

City Councilwoman Mary Pat Clarke, who attended the event, stressed afterward that the city has a balanced budget and is financially solvent.

"This city is not in financial jeopardy. It is not in ruin or bankruptcy," she said. Clarke likened the report to "a plan to get the kids to college."

Comptroller Joan M. Pratt suggested that city money could be spent more wisely, questioning multimillion-dollar tax breaks for developers and contracts extended without seeking new competitive bids. She urged the mayor to increase funding for city auditors, arguing that they could recover more savings.

"We have to take a look at the way we do business and the way we spend money," Pratt said. Developers "cannot continue to get those lucrative incentives that we have offered them in the past."

In a presentation, the city budget director, Andrew Kleine, described the 10-year financial forecast as neither "optimistic" or "pessimistic." He said the consultants arrived at the figures by predicting that the city's population growth would remain the same over the next decade. Kleine said the slow economic recovery and a drop in state aid have hurt Baltimore, and costs for infrastructure, such as maintaining roads, bridges and water pipes, continue to eat up city funds.

"Roads get beyond resurfacing at a certain point," Kleine said. "You neglect the infrastructure and it becomes more costly. ... We can't tax our way out of this problem."

City Council President Bernard C. "Jack" Young said the city has been facing structural deficits for at least five years.

"Just like any other city in the U.S., the economy has affected all of our budgets," Young said. "I'm very confident that ... we're going to be able to come up with some fixes to the problems that we have. We're trying to work together to come up with some innovative ways to reduce costs."